Mobility Basics: how are international assignee salaries reviewed?

Wage increases are keenly anticipated by staff and might be widely reported in the media, campaigned for by unions, and in some cases stipulated in legislation. But why are salaries reviewed at all? And do assignee salaries need to be reviewed in a different way to local salaries?

Fundamentally salaries need to remain competitive to attract and retain talent and ensure the workforce capability is in place for the organisation to perform. Reviews of local salaries need to respond to such pressures as wage inflation and price increases and to keep pace with the labour market at the regional, industry or national level. For international assignees, there is the added complexity of price movements in two countries to consider, and the need to be competitive in the home country, host country and international markets.

Maintaining equity

When deciding how to review assignment salaries, it is useful to pause and reflect on the logic and premise of the original salary calculation method. The remuneration approach(es) an organisation adopts are determined by the type of equity it wants to achieve in order to promote mobility and retain talent. Does it wish to keep assignees anchored to their home country structure and lifestyle, or create equity between assignees and local peers in the host country?

A pre-defined design and method of calculation is then followed to set and agree a salary for the assignment before it starts. How that salary is reviewed in subsequent years will determine whether the desired equity is maintained.

Salary reviews in practice

If a host-based approach is used, just over half of companies update salaries in line with local salary trends and a further 11% update in line with local price inflation, which often correlates with local salary movements. However, 22% instead refer to trends in expatriate rather than local salaries, most likely because they have used the market rate for expatriate workers in the host country as the basis for the salary, rather than the rate for local nationals.

If a home-based approach has been used the total assignment salary will consist of multiple elements that should be reviewed to maintain equity with home country peers. Over half of companies review some or all elements of the salary each year, with cost of living adjustments and base salary most commonly reviewed each time. Over 40%, however, simply update the assignment salary in line with basic home or host salary increases, which can undermine the original purpose of the home-based approach as a means of achieving equity with home-country peers.

The following example shows how the salary could have evolved for a Dutch assignee in Buenos Aires over two years. Using the home-based approach on a gross reference salary of EUR 174 973 initially results in a net assignment salary of EUR 155 715, equivalent at that time to a host gross salary of ARS 5 773 214.

Exchange rate: EUR 1 = ARS 24.79

EUR

ARS

Basic salary

174 973

Less tax & social security

79 720

Home net salary

95 253

Spendable to be indexed

59 079

Housing/savings

36 174

Build-up of assignment salary

Home spendable

59 079

1 464 568

COLA

16 719

414 464

Total host related compensation

75 798

1 879 041

Housing/savings

36 174

896 753

Expatriate allowance

17 497

433 751

Location allowance

26 246

650 637

Total home related compensation

79 917

1 981 142

Assignment salary

Net

155 715

3 860 175

Gross

5 773 214

If this host salary was then updated in line with host country salary increases each year, by the time of the second salary review it would have risen to ARS 8 535 466, equivalent to EUR 208 233. However, the gross reference salary in the home country would only have risen to EUR 184 010 in the same period and this would be the salary referenced for new home country peers heading on assignment to Buenos Aires. The link to the home country pay scale has been broken, which could inhibit the repatriation of this assignee to the Netherlands.

Assignment gross salary

Shadow home gross salary

ARS

EUR

EUR

Year 1 – EUR 1 = ARS 24.79

5 773 214

232 885

174 973

Host inflation: 20.2%

Home inflation: 2.5%

Year 2 – EUR 1 = ARS 31.23

6 939 403

222 203

179 347

Host inflation: 23%

Home inflation: 2.6%

Year 3 – EUR 1 = ARS 40.99

8 535 466

208 233

184 010

Whatever method is chosen to update salaries, the assignee’s reference salary in the home country should be adjusted too, as elements such as employee pension contribution will be linked to this.

There may be reason to step in and review salaries more frequently than annually; significant price changes, or if monies the assignee is remitting between the home and host countries are being affected by currency movements, for example. Larger companies who have more employees and/or more assignees are more likely to have multiple reviews per year as standard than smaller ones, as they are more likely to have invested in assignment management software that makes the recalculation process easier. In addition, 37% of companies using the home-based approach and 21% of companies operating a host-based approach have provision in their policies to run unscheduled salary reviews in response to large movements in exchange rates or inflation.

Communication

Given the above, it is common that the salary the assignee is being paid at the start of the assignment does not remain at that level for the duration. An assignee may well expect the monies they receive to increase during the period they are abroad, if only because an upward trajectory in pay has been their experience to date when working in the home country, but what happens in reality could be different as a consequence of your salary review policy. COLA, for example, can go up or down according to relative price increases and exchange rate fluctuations.

It should be communicated clearly to the assignee before they go on assignment exactly when, how and for what their salary will be reviewed, as well as the possible outcomes. ECA is ready to assist you with assignee communication, whether it is through employee portals in our webtools, briefing workshops for HR and mobility colleagues, or commentary regarding individual cases.

FIND OUT MORE

Expatriate Market Pay reports are available through a subscription to ECA data and indicate the most common way in which assignee pay is set and reviewed in a country, alongside other detailed benchmarking information that enables you to measure the effectiveness of your assignment salary policy.

ECAEnterprise is the assignment management system that makes it easy to review and update salary calculations for individuals, groups, or your whole mobile population at once. Contact us to request a free demonstration.